Wolverine World Wide (NYSE:WWW) Will Be Looking To Turn Around Its Returns

What underlying fundamental trends can indicate that a company might be in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into Wolverine World Wide (NYSE:WWW), we weren't too upbeat about how things were going.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Wolverine World Wide is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.024 = US$29m ÷ (US$2.1b - US$869m) (Based on the trailing twelve months to December 2023).

Therefore, Wolverine World Wide has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Luxury industry average of 12%.

View our latest analysis for Wolverine World Wide

Above you can see how the current ROCE for Wolverine World Wide compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Wolverine World Wide .

What Does the ROCE Trend For Wolverine World Wide Tell Us?

In terms of Wolverine World Wide's historical ROCE trend, it isn't fantastic. Unfortunately, returns have declined substantially over the last five years to the 2.4% we see today. What's equally concerning is that the amount of capital deployed in the business has shrunk by 30% over that same period. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. If these underlying trends continue, we wouldn't be too optimistic going forward.

On a side note, Wolverine World Wide's current liabilities have increased over the last five years to 42% of total assets, effectively distorting the ROCE to some degree. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. And with current liabilities at these levels, suppliers or short-term creditors are effectively funding a large part of the business, which can introduce some risks.

In Conclusion...

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Long term shareholders who've owned the stock over the last five years have experienced a 70% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Wolverine World Wide does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is significant...

While Wolverine World Wide isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.